ONEOK Announces Second-quarter 2009 Earnings; Updates 2009 Earnings Guidance

Tuesday, August 04, 2009 4:10 PM

TULSA, Okla., Aug. 4 /PRNewswire-FirstCall/ -- ONEOK, Inc. (NYSE: OKE) today announced second-quarter 2009 earnings of 39 cents per diluted share, unchanged from the same period last year. Net income attributable to ONEOK was $41.7 million in the second quarter 2009, compared with $41.9 million in the same period in 2008.

Net income attributable to ONEOK for the six-month period ended June 30, 2009, was $164.0 million, or $1.55 per diluted share, compared with $185.7 million, or $1.75 per diluted share, in the same period last year.

ONEOK also updated its 2009 earnings per share guidance to the range of $2.40 to $2.70 per diluted share from its previous range of $2.25 to $2.75 per diluted share - which raised the midpoint to $2.55 per diluted share from $2.50 per diluted share.

"During the quarter, we benefited from volume increases in the ONEOK Partners segment, despite the effect that lower commodity prices had on certain businesses in the partnership," said John W. Gibson, ONEOK chief executive officer. "Our energy services segment also turned in a strong performance in the second quarter.

"Strong cash flows, combined with a solid operating performance in the first half of the year, give us confidence in our earnings guidance for 2009, despite a challenging industry and economic environment," Gibson added.

Second-quarter 2009 operating income was $154.8 million, compared with $173.0 million for the second quarter 2008. The reduction was primarily the result of significantly lower realized commodity prices in the ONEOK Partners segment. The distribution segment was down slightly, compared with the same period last year. These decreases were partially offset by improved transportation margins in the energy services segment.

Year-to-date 2009 operating income was $447.8 million, compared with $506.1 million for the same period last year. The decrease was primarily driven by significantly lower realized commodity prices and narrower NGL product price differentials in the ONEOK Partners segment. This decrease was partially offset by increased volumes from the Overland Pass Pipeline and the Guardian Pipeline extension and expansion in the ONEOK Partners segment. In addition, the energy services segment had improved transportation margins, and the distribution segment continued to benefit from the implementation of new rate mechanisms.

Second-quarter 2009 operating costs were $210.1 million, compared with $188.1 million in the same period last year. Year-to-date 2009 operating costs were $397.1 million, compared with $381.4 million in the same period in 2008. The increases were primarily the result of higher operating costs at ONEOK Partners' fractionation facilities, which included incremental operating expenses associated with the recently expanded Bushton fractionator, and incremental costs associated with the Overland Pass Pipeline; and higher employee-related costs, partially offset by lower bad-debt costs in the distribution segment.

SECOND-QUARTER 2009 SUMMARY INCLUDES:

Operating income of $154.8 million, compared with $173.0 million in the second quarter last year;
ONEOK Partners segment operating income of $124.8 million, compared with $163.7 million in the second quarter 2008;
Distribution segment operating income of $9.9 million, compared with $12.0 million in the second quarter 2008;
Energy services segment operating income of $19.4 million, compared with an operating loss of $4.4 million in the second quarter 2008;
ONEOK Partners completing a public offering of common units, generating net proceeds of approximately $241.3 million;
Receiving approval to increase rates by $1.1 million, recover the fuel-related portion of bad debts and the carrying costs for natural gas in storage in the distribution segment's central Texas service area, which includes Austin;
Filing under the performance-based rate structure for a base rate increase in the distribution segment's Oklahoma jurisdiction for $66.1 million - the first base rate adjustment since 2005 - which, if approved, would incorporate several existing riders, effectively reducing the requested rate increase to a net amount of $37.6 million;
ONEOK, on a stand-alone basis, ending the quarter with $329.9 million in short-term debt, $1.2 billion available on its existing credit facilities, $15.2 million of cash and cash equivalents and $399.9 million of natural gas in storage;
Distributions declared on the company's general partner interest in ONEOK Partners of $24.0 million for the second quarter 2009; distributions declared on the company's limited partner interest in ONEOK Partners of $45.8 million for the second quarter 2009;
ONEOK stand-alone cash flow from continuing operations, before changes in working capital, of $296.6 million for the six-month period 2009, which exceeded stand-alone capital expenditures and dividends of $169.9 million by $126.7 million;
Continuing progress on environmental initiatives, reporting less than 1 percent of total throughput of lost-and-unaccounted-for natural gas; and less than 5 million metric tons of carbon dioxide-equivalent emissions during the recently completed 2008 review;
Increasing the quarterly dividend to 42 cents, payable on Aug. 14, 2009, to shareholders of record at the close of business July 31, 2009, an increase of 2 cents from the previous quarter; and
Announcing the retirement of James C. Kneale, president and chief operating officer, effective Jan. 1, 2010, and the promotion of Robert F. Martinovich to chief operating officer of ONEOK and Terry K. Spencer to chief operating officer of ONEOK Partners, effective July 16, 2009.

SECOND-QUARTER AND YEAR-TO-DATE 2009 BUSINESS UNIT RESULTS

ONEOK Partners

ONEOK Partners' second-quarter 2009 operating income was $124.8 million, compared with $163.7 million in the same period last year.

The second-quarter 2009 results were lower, compared with the prior year, primarily due to a $34.0 million decrease from lower realized commodity prices in the natural gas gathering and processing business; a $7.4 million decrease from the effect of lower natural gas prices on retained fuel in the natural gas pipelines business; and a $7.1 million decrease from narrower NGL product price differentials in the natural gas liquids gathering and fractionation business. These decreases were partially offset by a $23.5 million increase in the natural gas liquids businesses, primarily from increased NGL throughput from the Overland Pass Pipeline, as well as new supply connections; and an $8.3 million increase from incremental natural gas transportation margins as a result of the Guardian Pipeline expansion and extension that went into service in February 2009.

For the first six months 2009, ONEOK Partners' operating income was $249.6 million, compared with $314.3 million in the same period a year earlier.

The six-month results declined primarily due to $61.4 million in lower realized commodity prices in the natural gas gathering and processing business; $28.0 million in narrower NGL product price differentials in the natural gas liquids gathering and fractionation business; and $11.7 million from the effect of lower natural gas prices on retained fuel in the natural gas pipelines business. These decreases were partially offset by a $47.6 million increase in the natural gas liquids businesses, primarily from increased NGL throughput on the Overland Pass Pipeline; and a $13.2 million increase in incremental natural gas transportation margins related to the Guardian Pipeline expansion and extension that went into service in February 2009.

Second-quarter 2009 operating costs were $100.5 million, compared with $87.2 million in the second quarter 2008. Six-month 2009 operating costs were $190.0 million, compared with $175.2 million in the same period a year earlier. The operating cost increases for the quarter and six-month period were primarily due to higher operating costs at fractionation facilities, which included incremental operating expenses associated with the recently expanded Bushton fractionator; and incremental operating costs from the Overland Pass Pipeline.

Depreciation and amortization expense was $40.0 million in the second quarter 2009, compared with $30.0 million in the same period in 2008. For the six months, depreciation and amortization expense was $79.9 million in 2009, compared with $60.0 million in 2008. The increases were primarily due to incremental expenses associated with the partnership's completed capital projects.

Second-quarter 2009 equity earnings from investments were $14.2 million, compared with $17.6 million in the same period a year earlier. For the six months, equity earnings from investments were $35.4 million in 2009, compared with $45.4 million in 2008. The decreases were primarily due to lower subscription volumes and rates on the Northern Border Pipeline and lower volumes on certain natural gas gathering and processing equity investments.

Distribution

The distribution segment reported operating income of $9.9 million in the second quarter 2009, compared with $12.0 million in the second quarter 2008.

Second-quarter 2009 earnings benefited from new rate mechanisms, which contributed $1.1 million in Oklahoma, $1.9 million in Kansas and $0.7 million in Texas. However, operating costs for the second quarter 2009 increased to $99.4 million, compared with $93.9 million for the same period last year, primarily due to $6.8 million in higher employee-related costs and $1.9 million in higher property tax expenses. These operating cost increases were partially offset by a $2.9 million decrease in bad-debt expense.

For the six months 2009, operating income increased to $122.7 million, compared with $120.6 million in the same period in 2008.

Six-month 2009 results improved primarily due to a $7.9 million increase from the implementation of new rate mechanisms, which included $2.8 million in Oklahoma, $3.6 million in Kansas and $1.5 million in Texas. These gains were partially offset by a $1.6 million decrease from lower sales volumes due to warmer weather in the entire service territory.

Operating costs were $189.5 million for the six months 2009, compared with $188.1 million for the same period last year, primarily due to $5.6 million in higher employee-related costs and $1.8 million in higher property tax expenses. These increases were partially offset by a $5.8 million decrease in bad-debt expense, which included the Oklahoma mechanism that went into effect in January 2009 to recover the fuel-related portion of bad debt.

Depreciation and amortization expense was $30.7 million in the second quarter 2009, compared with $29.1 million in the same period last year. For the six months 2009, depreciation and amortization expense was $62.3 million, compared with $58.0 million in 2008. The increases are due to depreciation expense associated with capital investment and regulatory amortization associated with revenue rider recoveries.

Residential volumes decreased for both the three- and six-month periods, compared with the same periods last year, due to warmer temperatures in the entire service territory; however, weather-normalization mechanisms moderated the impact on margins.

Energy Services

Energy Services reported second-quarter 2009 operating income of $19.4 million, compared with an operating loss of $4.4 million in the same period in 2008.

Second-quarter earnings benefited from $26.1 million in higher transportation margins, net of hedging activities, primarily due to higher realized Rockies-to-Mid-Continent margins, and a $4.4 million increase in retail marketing margins. These gains were partially offset by a $4.7 million decrease in financial trading margins.

Operating income for the six months was $74.4 million, compared with operating income of $69.9 million in the same period in 2008.

The six-month 2009 results improved due to a $10.0 million increase in transportation margins, net of hedging activities, primarily due to higher realized Rockies-to-Mid-Continent margins; a $3.6 million increase in retail marketing margins; and a $2.3 million increase in financial trading margins. These increases were partially offset by a $12.3 million decrease in storage and marketing margins, primarily due to lower realized seasonal storage differentials.

At June 30, 2009, total natural gas in storage was 68.9 Bcf, compared with 41.2 Bcf a year earlier. Total natural gas storage capacity under lease was 82.5 Bcf at the end of the second quarter 2009, compared with 91 Bcf in the same period 2008.

The net margin for the energy services segment was derived from the following sources:

                                       Three Months Ended   Six Months Ended
                                            June 30,            June 30,
                                          2009   2008        2009      2008
                                          ----   ----        ----      ----
                                               (Millions of dollars)
    Marketing, storage and
     transportation, gross               $74.7   $51.2       $186.6   $188.8
    Storage and transportation costs     (51.6)  (54.3)      (108.6)  (108.5)
    --------------------------------     -----   -----       ------   ------
       Marketing, storage and
        transportation, net               23.1    (3.1)        78.0     80.3
    Retail marketing                       6.8     2.4         11.2      7.6
    Financial trading                      0.2     4.9          3.5      1.1
    --------------------------------       ---     ---          ---      ---
      Net margin                         $30.1    $4.2        $92.7    $89.0
      ==============================     =====    ====        =====    =====

2009 EARNINGS GUIDANCE

ONEOK updated its 2009 earnings per share guidance to the range of $2.40 to $2.70 per diluted share from its previous range of $2.25 to $2.75 per share - which raised the midpoint to $2.55 per diluted share from $2.50 per diluted share. Exhibit A includes updated information on the 2009 earnings guidance.

The average unhedged prices used in the updated 2009 guidance for the remaining six months of 2009 are $64 per barrel for New York Mercantile Exchange (NYMEX) crude oil, $4 per MMBtu for NYMEX natural gas and 67 cents per gallon for composite natural gas liquids. The average Conway-to-Mont Belvieu Oil Price Information Service (OPIS) average price differential used for ethane for the remaining six months of 2009 is 10 cents per gallon.

Operating income guidance is unchanged for the distribution and energy services segments. The updated guidance reflects an increase in ONEOK Partners' operating income guidance, primarily from higher anticipated NGL product price differentials, partially offset by lower expected equity earnings.

The guidance was also updated to reflect increased capital expenditures. In the ONEOK Partners segment the increase is primarily due to higher costs associated with the Arbuckle Pipeline in the natural gas liquids pipelines business.

EARNINGS CONFERENCE CALL AND WEBCAST

ONEOK and ONEOK Partners management will conduct a joint conference call on Wednesday, Aug. 5, 2009, at 11 a.m. Eastern Daylight Time (10 a.m. Central Daylight Time). The call will also be carried live on ONEOK Partners' and ONEOK's Web sites.

To participate in the telephone conference call, dial 866-802-4305, pass code 1376622, or log on to www.oneokpartners.com or www.oneok.com.

If you are unable to participate in the conference call or the webcast, the replay will be available on ONEOK Partners' Web site, www.oneokpartners.com, and ONEOK's Web site, www.oneok.com, for 30 days. A recording will be available by phone for seven days. The playback call may be accessed at 866-837-8032, pass code 1376622.

ONEOK, Inc. (NYSE: OKE) is a diversified energy company. We are the general partner and own 45.1 percent of ONEOK Partners, L.P. (NYSE: OKS), one of the largest publicly traded master limited partnerships, which is a leader in the gathering, processing, storage and transportation of natural gas in the U.S. and owns one of the nation's premier natural gas liquids (NGL) systems, connecting NGL supply in the Mid-Continent and Rocky Mountain regions with key market centers. ONEOK is among the largest natural gas distributors in the United States, serving more than two million customers in Oklahoma, Kansas and Texas. Our energy services operation focuses primarily on marketing natural gas and related services throughout the U.S. ONEOK is a Fortune 500 company.

For information about ONEOK, Inc., visit the Web site: www.oneok.com.

Some of the statements contained and incorporated in this news release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, as amended. The forward-looking statements relate to our anticipated financial performance, management's plans and objectives for our future operations, our business prospects, the outcome of regulatory and legal proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

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